Tenants Living In Property Subject To Foreclosure

If you are renting your home, whether it is a single family dwelling or an apartment, and you discover a notice of foreclosure posted on the property, you may be wondering if you still need to pay rent, whether or not you have to vacate, or how you might be affected generally. You might also be wondering to do when discovering that the property you reside in has been sold at a foreclosure sale.

Before a Scheduled Sale - Initial Concerns.

If you have received a notice of default or foreclosure in the mail, or found it posted conspiuously on the property, you should continue to pay your rent to your landlord regardless of whether the landlord is paying his or her mortgage. Your landlord's agreement with his or her lender is between him or her and the lender and does not involve you. Similarly, your tenancy is between you and the current owner as landlord, and you must still honor your obligations under your lease or rental agreement. If you do not, you could still be evicted and the fact that the property may be in the foreclosure process will not serve as an adequate defense for you.

Additionally, it is becoming more and more common for landlords and their lenders to workout any loan difficulties by executing loan modifications, short sales, or forbearance agreements to keep the property from being foreclosed upon. While it is important that you be aware of any pending foreclosures, you should also be mindful that you might not be affected by it. Even if the property does proceed through the foreclosure process and is sold at auction, there are laws that still offer you some protection.

After a Scheduled Sale - What Are a Tenant's Rights?

Ordinarily, Washington law allows a landlord to terminate a tenancy with a 20-day notice. This included new owners as landlords after a foreclosure sale. However, since 2009, new laws have been implemented overrode this notice period. These new laws protect you only if you are a tenant and not the previous owner.

If the property you are renting does get sold at a foreclosure sale, there are State and Federal Laws that will apply to you. Under federal law, if you have an unexpired lease, and the new owner is not planning to move into the property as their primary residence, you will get to stay until your lease ends. You must continue to honor the terms of the lease, but your will now be paying rent to the new owner. If the new owner is planning to move into the property, federal law requires that the new owner provide you with at least 90-days notice before you can be evicted. During this time, you must still honor the obligations of your lease or rental agreement and pay rent to the new owner.

Under State law, a new owner only has to give you 60-days notice to vacate. During this time, the law appears to provide that you would not have to pay rent, stating specifically that a new owner "may only evict the tenant if the tenant commits waste or nuisance," but does not say the owner can evict for the non-payment of rent. You have a right to assert your federal law rights and demand 90-days notice instead of 60-days, but the trade off appears to be paying rent. In some cases you may be better off saving rent for 60-days and moving instead of paying rent for 90-days and moving. On the other hand, even under a 60-day notice, the new owner may still try to evict you for the non-payment of rent. If you receive a post-foreclosure notice, you should consult with an attorney immediately.

Under both State and federal law, the new owner could also offer you a new lease or offer to sell you the property as well.

Section 8 or Other Subsidized Tenants.

For tenants on section 8, the same protections apply. You must either be provided 90-days notice or your lease must be permitted to expire. The new owner must also honor the terms of the Housing Assistance Payments (HAP) contract. The new owner cannot rely on the "other good cause" clause of the HAP agreement unless the other good cause if legitimate and not for purposes of making it easier to re-sell the property. If you are not a Section 8 tenant but your rent is subsidized by another program, you are still provided the same protections under federal law.

What If I Live In Seattle?

In Seattle, tenancies are normally subject to the City's Just Cause Eviction Ordinance (JCEO). A landlord cannot evict a tenant for any reason except what is permitted under the JCEO. It is unclear whether the JCEO applies to a purchaser of property at a foreclosure sale, but if a tenant pays rent and the new owner accepts it, it is likely that the JCEO will apply. This means that in addition to the federal and State laws discussed above, a tenant may receive additional protections in the Seattle City limits.

Issues Involving The Payment of Rent.

After a sale, under federal law, you must pay the rent to the new owner. If you do not know who the new owner is, you should save the rent for when you do learn of the new owner. Even if you do not know who the new owner is, or where to send the payment, the new owner has a right to collect the rent, and if you do not have the rent available, you could be subject to eviction for the non-payment of rent.

Be aware of scammers out there too. Sometimes people will contact you demanding rent without being entitled to it. Before you pay someone rent, make sure they are the legal owners of the property. Ask to see a copy of the Trustee's Deed as proof of ownership and contact the County Auditor's office to make sure the Deed is legitimate and not a forgery.

If you paid a deposit and the old landlord did not trnasfer it with the sale, your old landlord will be liable for up to twice the amount plus attorney's fees and costs. Be aware, however, that you may still need to pay a deposit to the new owner regardless of whether or not the old landlord wrongfully kept your deposit or not.

If you were paying rent to a property management company before the foreclosure sale, you should confirm with the new owner whether or not to continue paying the rent to them or not. The property management company's agreement to manage the property was with the previous landlord, not the new one. Unless the new owner has a new agreement in place with the property management company, you should be paying the new landlord directly.

Other Options.

Sometimes a new property owner or your landlord's lender who has taken the property back offer to pay a tenant a one-time cash payment in exchange for vacating earlier than 90-days. This is often referred to as "cash for keys." Whether you should take this type of offer or not depends upon you. You are entitled to at least 90-days' notice under federal law. If you decide to leave sooner under a cash for keys type of deal is entirely up to you. If the new owner tells you that you can choose to take the deal or be evicted with less than 90-days notice, you may have legal remedies against them based on false information. If you take the deal, you may also want to try to negotiate an acceptable amount of time and cash amount to move.

No matter what your situation is, if you are a tenant and you receive a notice of foreclosure or a notice to vacate after a foreclosure sale, you should promptly consult with an attorney about your rights and responsibilities.